B-B2: 7/12 Hit Double on ATVI (400 shares strike 60) (2 positions). This was an original 5/19/17 OTM trade with Purchase price of 54.59, ROO Cost basis of 54.59 and Strike 60. Expired Worthless and Rolled last cycle. BTC 20% Rule loss was 0.31 or -0.56% (0.31/ 54.59).. STO gain was 0.9706 or 1.8% for net Hit Double gain of 0.6602 or 1.24%. Using the Last Price for 7/14 of 60.75 with Strike 60 (Strike limited), net final position gain is $3117.12 or an ROO of 14.28%. This position will be assigned away at the end of the 7/21 cycle since Earning report is on 8/3.

Check for Gain and BreakEven Point::
Break Even:
As a check, for the above position, the Breakeven point is 52.207 per share after adding up all the options costs of $953.92 or 2.3848 per share. 54.592 Purchase price – 2.3848 Options = 52.207.

I have no clue what the study guide offers versus the book but I look forward to your comments. I picked up a few copies of the 3rd edition late last year for $3.59 apiece from Thrift Books as stocking stuffers. It kinda ruined the stockings :->)

I read the 4th edition and didn’t buy the 5th since at this point, I’m not looking to expand into the latest new exotic new products, etc. I’ know enough to be dangerous and there’s no need to exacerbate that. :->)

Spin

]]>By: MarioGhttps://www.thebluecollarinvestor.com/tax-implications-of-writing-covered-calls-against-long-term-holdings/#comment-115867
Sat, 15 Jul 2017 05:43:08 +0000https://www.thebluecollarinvestor.com/?p=15612#comment-115867Spindr –
I was able to check out from the Broward County Library (Florida) the book by McMillan “Study Guide for Options as a Strategic Investment” Will comment on it after I do some reading.

The library in this area is a valuable free source for books. Great feature is you can keep checking out the same book as long as nobody else requests it. Been doing that for many years for various certifications and course requirements..

The last 3 days I really exercised the knowledge I have received from Alan and from actual trading for 15 months. Out of my 20 current positions with 11 Stocks , 4 started as OTM, 13 were ITM

As of 7/7:
As of last Friday 7/7/17 my 4 account Portfolio at 2 Brokerages was 95.2% invested and YTD I am at 8.2% and 16.4 annualized. This was despite I was down $7000 from my Account value high point for the year which occurred on 6/23.

20% rule execuled:
Because of the recent downturn in some Leisure stocks (HLT-hotel) and (MGM-casino), technical stock ATVI-software, and the ETF QQQ-Nasdaq ETF. Between 7/3 and 7/7 last week, all these stocks crossed the 20% call value premium rule (20% of STO premium of option). In one account, the BTC premiums ranged from $42.00 (2 contracts) to $140.00 (7 contracts of MGM at $0.20 per share).

It’s interesting to calculate the Price decline of the Underlying from the Purchase date or Price of last Roll of the 4 stocks when they hit the 20% Rule: MGM Strike 33 (8%), MGM Strike 32 4,8%, QQQ 3.3%, ATVI 6.3%. Varies I am sure because of the volatility of the stock. Per Alan’s rules, you use the 20% rule irrespective of the OTM or ITM purchase type. ATVI was the only OTM stock and its drop was in the middle of the range.

To execute the 20% rule, I automated the process with a BTC GTC order for the Option leg only as I saw the price dropping. This was Week 3 of a 5 week cycle so the 20% rule is in effect (Changes to 10% in 4th Week or 5 week cycle).

For the limit order, I even took into account commission effect on the trade if contracts were small and the stock was not consolidating at the 20% price level – since a $6.00 (Base plus contract) charge on 100 shares is $0.06 or $6 expense while on 700 shares is around $0.01. That is significant when later you want to trade an STO order with a smaller time value (decay) than your original purchase.

After filling the BTC orders, I then waited to “Hit a Double”, the goal of which is to wait till the price of the Stock price recovers to at or near the original price and then placing a new STO order to get a second round of income.

Reserve:
I found, when doing my documentation, that there is a reserve put in your cash to cover the BTC, Interesting how your Account value remains the same but your Cash available to Trade is reduced by the reserve. Fidelity and Optionshosue call this “Committed to Open Orders”. Optionshouse calls the two Cash Available to Trade, and the reserver, Cash on Deposit. The amount reserved includes the commission, too, but not the management assessment fee.

Summary of Trades 7/12 Wed – 7/14 Friday.

A: 7/12 1 – Multicontract Unwind and (GLW) with Buy Write Sell order loss of 0.21% loss or $42.63 out of the 1036.56, 5.1% net gain in the position This was followed with a search on Week 4 of 5 of where to spend the New Money released. See detail below.

B-B2: 7/12 Hit Double on ATVI (400 shares strike 60) (2 positions). This was an original 5/19/17 OTM trade with a ROO Cost basis of 54.59 and Strike 60. Expired Worthless and Rolled last cycle. BTC 20% Rule loss was 0.31 or – 0.56%. STO gain was 0.9706 or 1.8% for net Hit Double gain of 1.24 of 2.3%. Net final position gain 2353.12 or ROO 10.8%. This position will be retired next cycle since Earning report is on 8/3.

GLW-Corning – Multi-Contract Unwind-Week 4 of 5:
The stock gapped up further and I saw an opportunity for a Mid-Contract unwind with a loss of less than 0.2% after commission to use the money for new positions. For a typical calculation I did the following:
1. GLW Current Covered call info: GLW 700 shares with Option 7 Contracts 29 Call Exp 7/21. Originally purchase 5/3, Rolled 6/16, Strike 29, ROO% Cost Basis 29, Current Gain of 1036.56 or ROO 5.1%. (1036.56 / (29*700)=5.1%).

2. To unwind GLW with 0.1 to 0.2% loss in including commission I did the following:. Commission about $10 for Unwind or $0.014 / share ($10.00 / 700) shares (actual was – Fidelity $10.40 – 4.95 plus Fee 0.5, and for the option 4.65 plus fee 0.30). For the time value, 0.1% loss is a time value of .029 (Cost basis * .001). The total is an allowable time value of .043 (.014 +.029). To guarantee this time value I set a buy-write Sell order with a credit limit of 28.95 (Strike – Time Value). (Remember I posted earlier a proof that the Price of the stock does not matter if you want a certain time value, that is equivalent to the Current price of the stock – Premium paid. This is only true for ITM calls.).

Actual final trade was at credit limit of 28.94 which is 0.21% loss (.06 / 29). Actual share price was 30.79 and option price of 1.85. The difference is 28.94, which correlates with the Credit Limit.

On an investment of $20,300 (29 x 700, ROO CostBasis) that is $42.63 loss out of the current gain of $1036.56, which reduces the ROO% from 5.1% to 4.9%.

Ending the Story:
With the New Money released with my unwind of 2 GLW positions (500 15.3K, 700 shares or 27.5K ), I searched far and wide for a Stock that looked favorable, ITM, BEP good, lower volatility in charts, and a reasonable ROO%. Looked at latest Premium Report, first for Positive, then Mixed Securities. No luck. Checked Last Weeks Premium report. No luck.

Checked last cycle stocks. Found ATHM with an ER of 8/9 which gapped up on 6/9 released for new money. This chart and BEP points looked good. Strike 45 Exp 7/21. Ended filling two order with Time value of 0.47 (1.04% ROO% and debit limit of 44.54 (45 – 0.47 Strike – Time Value). Added additional income of $291.4 (.47×500) and $329 (0.47×700) to two accounts before commission.

Mario G.

]]>By: Justin P.https://www.thebluecollarinvestor.com/tax-implications-of-writing-covered-calls-against-long-term-holdings/#comment-115847
Fri, 14 Jul 2017 23:23:04 +0000https://www.thebluecollarinvestor.com/?p=15612#comment-115847I can see your point Spin – I haven’t analysed enough weeklies to be sure one way or another. I do recall that when it was a wide spread that the bid was never close to an acceptable price though so I lost interest since I was finding plenty of good trades on the monthlies.
Anyway great to see another good night on the market and I’m off on a day hike now 🙂
]]>By: Ronihttps://www.thebluecollarinvestor.com/tax-implications-of-writing-covered-calls-against-long-term-holdings/#comment-115777
Fri, 14 Jul 2017 15:16:17 +0000https://www.thebluecollarinvestor.com/?p=15612#comment-115777Justin,

about PYPL, you got me baffeled:
When I looked it up last week EW showed July 20, or my eyes confused the 6 with a 0, which is not impossible because my eyesight is pretty bad after trombose, glaucoma, and cataract.
Getting old is tough. 🙂

Shorter term options offer a higher ROI and decay faster but they offer less premium and therefore less downside protection. So the question is, does a near term weekly offer enough of each? If not, you go out a week at a time until you find one that provides enough premium, ROI and downside protection to suit you. That price could be a weekly, it could be a monthly. The sweet spot for time decay is 30-45 days so going out further than that provides less theta (time decay) and a lower ROI. It’s not a question of one being better than the other but which one is best for your fear and greed (risk tolerance and profit objective).

Conventional wisdom suggests avoiding options with low OI and wide B/A spreads. I see at it differently. Writing a CC is a transactional event where the strike price plus premium provides an acceptable sale price. If you don’t want to sell at that price pick a higher strike. If you don’t want to sell your stock at all, don’t monkey around with CCs.

If the bid of the call that you are willing to sell offers an acceptable premium, does it matter to you if the spread is 5 cents wide or 50 cent wide? Does it matter if the OI is 2 or 100? Either way you contract for an acceptable sale price. The only way the B/A spread an OI is going to bite you is if something changes and you want to cover the short call. So my question is, if the current bid is acceptable, are you going to avoid selling the call because you might change your mind? If yes, then avoid wide B/A spreads and low OI. If it’s a buy and hold unless assigned position, sell that call.

Let’s project this to weekies. If the bid of any weekly (or monthly) call is an acceptable sell price, how is the market maker taking advantage of you? It’s a contractual transaction at the (acceptable) bid and it doesn’t matter if the MM or another person is the counter party to the trade. You got your price.